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New Milford Town Council discusses potential IRS liability over 2008 bond issue

The New Milford Town Council is discussing how to resolve a recently discovered mistake with how the Volunteer Ambulance Corp.'s new ambulance facility was bonded in 2008.  Mayor David Gronbach says the town had the opportunity to re-finance old bonds at a lower rate, but a mistake about how the Ambulance Bond was classified was discovered by the Bond Attorney. 


In 2008, $3 million of General Obligation Bond Anticipation Notes were rolled into general obligation bonds.  Municipal bonds cannot be issued to benefit a private group or organization, so the Town and Ambulance Corp entered into an agreement in 2011 to reimburse the Town for the finance costs of the new facility. 


But Gronbach says because it's a 501(c)(3), the payments contradict what was said in the bond offering, and prevented the Town from refinancing.  He says New Milford faces a potential $100,000 penalty. 


The town's Bond Attorney has recommended New Milford inform the IRS of the conflict, convert the bond to a type that allows a non-profit like the Ambulance Corp to benefit from it, and issue new bonds.  Gronbach noted that the estimated $20,000 legal cost to pursue this remedy is significantly less than the potential $100,000 in penalties the Town faces.

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